9/22/07

The Closing Bell

The Bottom line

Statistical Summary

Current Economic Forecast

2007

Real Growth in Gross Domestic Product (revised): 2.0- 2.5%

Inflation: 2 - 2.5 %

Growth in Corporate Profits (revised): 6-8%

2008

Real Growth in Gross Domestic Product (GDP): 3-3.25%

Inflation: 1.75-2%

Growth in Corporate Profits: 7-9%

Current Market Forecast

Dow Jones Industrial Average

2007

Current Trend:

Medium Term Uptrend 13030-14592

Long Term Uptrend 11757-23751

Year End Fair Value (revised): 13250

2008 Year End Fair Value (revised): 14250

Standard & Poor’s 500

2007

Current Trend:

Medium Term Uptrend (?) 1449-1585

Long Term Uptrend 1225-2400

Former Long Term Trading Range (?) 750-1527

Year End Fair Value (revised): 1525

2008 Year End Fair Value (revised): 1640

2008 Year End Fair Value: 1625

Percentage Cash in Our Portfolios

Dividend Growth Portfolio 7%

High Yield Portfolio 30%

Aggressive Growth Portfolio 5%

Economics

Three points following a big week:

(1) the Fed’s action Tuesday means that a recession isn’t assured; but that doesn’t mean that it still isn’t a decent probability. The economic statistics remain worrisome. Our forecast [the ‘soft’ landing] is not changing but seems to becoming progressively less likely.

(2) we said last week that the Fed has a choice between two evils: recession and inflation. It chose to attempt to avoid recession--with which we agree. Unfortunately, we must now contend with the lesser evil: the risk of a resurgence in inflation--and at time when we have our political eye focused on November 2008, i.e. the increasing probability of the Democrats taking control of both the executive and legislative branches and our belief that their current platform fosters inflation. Bottom line: any weakness in gold prices will likely prompt us to raise our Portfolios’ commitment to USERX.

(3) the narrative in the financial press notwithstanding, the poor housing market was, in our opinion, only a peripheral cause of the Fed’s rate cut. The freeze up in corporate credit was the primary culprit--Uncle Ben was worried that corporate America couldn’t finance its daily credit needs. The point here is that more rate cuts are dependent on the lack of liquidity in commercial paper market versus how poorly the housing market is performing.

The Economic Risks:

(1) the economy is weaker than expected.

(2) Fed policy (reading the data correctly).

(3) a disruption in global oil supplies (It is not the price of oil but its availability that will cause severe economic dislocation.).

(4) protectionism (Free trade is a major positive for world and US economic growth.).

(5) fiscal profligacy (Government spending as a percent of GDP is too high and the looming explosion in entitlement expenditures will make it worse. There is no good solution save spending discipline.).

(6) a rising tax and regulatory burden (Government has never proven that it could solve economic problems efficiently or satisfactorily.)

Politics

Domestic

International War Against Radical Islam

The Market

Technical

The DJIA is in an up trend defined by the approximate boundaries of 13030 and 14592. The S&P remains in its seven year trading range with boundaries of 750-1527.

Fundamental

The DJIA (13820) finished this week more than 5% over valued (13751) while the S&P (1525) is right on Fair Value (1525).

Our investment strategy is:

(1) use our Price Disciplines to take advantage of the ongoing heightened volatility to upgrade the quality of our Portfolios by taking profits in our weakest holdings when prices spike to the upside and buying the stocks of great companies when opportunities present themselves,

(2) insure that our Portfolios can ride out any further turmoil brought on by trouble in the credit markets

DJIA S&P

Current 2007 Year End Fair Value 13250 1525

Fair Value as of 9/30/07 13062 1503

Close this week 13820 1525

Over Valuation vs. 9/30 Close

5% overvalued 13715 1578

10% overvalued 14368 1653

Under Valuation vs. 9/30 Close

5% undervaluation 12409 1427

10%undervaluation 11755 1352

The Portfolios and Buy Lists are up to date.

News on Stocks in Our Portfolios

Market Analysis

Company Highlight:

Background Analysis

The Numbers

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 38 years of investment experience includes institutional portfolio management at Scudder. Stevens and Clark and Bear Stearns, managing a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies. Through his involvement with Strategic Stock Investments, Steve hopes that his experience can help other investors build their wealth while avoiding tough lessons that he learned the hard way.